What is the normal range for the ratio of estimated deficiency to PHS?

• A. < 10%
• B. < 25%
• C. < 50%
• D. < 75%

Answer: (B)

Think of PHS as the cushion the company has to absorb losses, while the deficiency is the amount needed to cover shortfalls. The ratio shows how big a shortfall is relative to that cushion. In practice, a deficiency that amounts to less than one-quarter of the PHS indicates a normal, comfortable margin for solvency.

For example, if PHS is 400 units, an estimated deficiency up to 100 units keeps the ratio at 25% or less. Once the deficiency grows beyond that (e.g., 110 units → 27.5%), the cushion is no longer considered normal and would typically prompt remedial actions.